Genworth IPO may be largest since Promina

US-based Genworth Financial has said it has “no current plans" to further sell down its stake in float debutant Genworth Mortgage Insurance Australia, after the expiry of an escrow period.

In a prospectus lodged on Wednesday, chairman of the local entity
Richard Grellman
said after the initial public offering Genworth Financial would own at least 60 per cent of the Australian listed company.

“Genworth Financial has stated it has no current plans to further reduce its ownership," he said. “The issuer will use the proceeds of the offer to repay intragroup funding arrangements . . . Genworth Australia will not retain any net proceeds of the offer. “

The escrow period for the parent entity expires after Genworth Australia lodges its results for the year ended December 31. Genworth plans to raise $429 million to $754 million, by selling shares at $2.20 to $2.90 apiece. The final amount raised will depend on an offer structure and price determined at a book-build on May 15. The offer for retail investors opens on May 2.

The offer was priced at 0.65 times to 0.85 times book value and represented 30 per cent to 40 per cent of the company. The stock is expected to start trading on a conditional and deferred settlement basis on May 20.

If the offer prices at the top end of the range, it will mark the biggest local financial services float since Promina Group hit the bourse in 2003, Dealogic data shows. The 2014 float comes after a previous attempt to list was shelved, amid adverse market conditions.

Locally, Genworth is a provider of lenders mortgage insurance (LMI). LMI protects the lender when a borrower fails to meet home loan repayments. To appease investor concerns about risks in the housing market, the prospectus said Genworth Australia has been profitable for 46 of the past 48 years, through a “wide range" of economic, housing and business cycles. Among the risks the company identified was a concentrated lending market, putting earnings under pressure should a major bank decide not to purchase LMI or to significantly reduce it.

The board outlined a target dividend payout ratio range of 50 per cent to 70 per cent of underlying net profit, delivering a dividend yield of 6.7 per cent to 8.9 per cent.